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Author: 


Green,  David  I. 


Title: 


Wieser's  Natural  value 


Place: 


[Philadelphia] 


Date: 


[1 895] 


9^-  9ZIS0 '  I 


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MASTER   NEGATIVE   # 


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Wieser^s  Natural  value,  c Philadelphia,  Ameri- 
can academy  of  political  and  soaial  science, 
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c 52 3-70  p,   (On  cover:  Publications  of  the 
Ainerican  academy  of  political  and  social  science, 
no.  138) 


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MAIN  ENTRY:    Green.  David  L 


Wieser's  Natural  value 


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WlESER*S  NATURAI.  VALUE. 


53 


WIESER'S  NATURAlv  VALUE. 

The  long  expected  translation  oi^'Der  Natiirliche  IVerfk'* 
has  appeared,  and  finds  a  comparatively  large  public  ready- 
to  welcome  it.  The  older  English  and  American  economists, 
while  recognizing  that  the  Austrians  have  done  careful  and 
suggestive  work  in  economic  theory,  do  not  seem  to  have 
been  turned  to  any  great  extent  from  their  former  ways  of 
thinking;  but  it  is  a  significant  fact  that  the  young  men 
whose  ideas  upon  economic  theory  have  been  formed  since 
the  Austrian  writings  became  accessible  have  quite  generally 
adopted  the  leading  conceptions  and  nomenclature  of  the 
Austrian  school.  This  does  not  mean  that  the  young  men 
consider  the  older  theories  altogether  wrong  or  the  new 
theories  altogether  correct  and  complete,  but  it  does  indicate 
that  an  important  influence  has  been  brought  to  bear  upon 
economic  thought.  The  extent  of  this  influence  cannot  yet 
be  told,  but  it  is  not  too  early  to  form  at  least  an  opinion  as 
to  what  Austrian  conceptions  are  likely  to  become  permanent 
factors  of  economic  theory. 

It  is  inevitable  that  such  independent  thinkers  as  Menger, 
Wieser,  Bohm-Bawerk,  and  Sax  should  differ  from  each 
other  as  well  as  from  the  theorists  of  other  schools.  But 
Wieser's  work  on  Natural  Value,  more  than  any  other  pro- 
duction of  the  Austrian  economists,  presents  clearly  and 
fully,  the  fundamental  ideas  which  the  different  members  of 
the  school  hold  in  common.  A  review  of  that  work  nat- 
urally involves  a  criticism  of  what  has  come  to  be  known  as 
the  Austrian  theory  of  value. 

By  far  the  most  prominent  characteristic  of  the  Austrian } 
theory  of  value  is  its  complete  dependence  upon  the  principle 
of  marginal  utility.     A  man  having  an  income  of  $1000, 
spends  part  of  it  for  necessities  which  are  of  immeasurable 
utility  to  him,  other  portions  are  used  for  the  gratification  of 

[512] 


k^ 


ly 


desires  of  less  and  less  intensity.  The  satisfaction  which 
would  in  that  case  depend  upon  the  possession  of  the  last 
dollar  of  the  income  would  measure  the  marginal  utility  (or, 
as  the  Austrians  would  say,  the  value)  of  a  dollar  to  the 
man  in  question.  Of  course  the  principle  applies  to  stocks 
of  other  goods  as  well  as  to  dollars. 

As  is  well  known,  this  principle  of  the  decreasing  utility 
of  duplicated  goods  is  by  no  means  new  to  economic  theory 
or  to  the  English  literature  of  the  subject.  Senior*  men- 
tioned it  as  early  as  1836  and  Robert  Jennings  f  in  1855  set 
it  forth  as  **  the  foundation  of  the  changes  of  money  price, 
which  valuable  objects  command  in  times  of  varied  scarcity 
and  abundance.*'  Passing  by  numerous  French  and  German 
writers  who  enunciated  the  principle  with  more  or  less  clear- 
ness, we  find  that  Jevons  preceded  the  Austrian  economists 
in  developing  the  theory  that  marginal  ('* final")  utility 
rather  than  cost  of  production  is  the  basis  for  the  ratios  of 
exchange.  Professor  J.  B.  Clark  J  also  approached  the  Aus- 
trian conception  in  making  value  *  *  the  measure  of  effective 
utility. "  It  is  for  the  systematic  and  thorough  development 
of  the  theory  of  marginal  utility  rather  than  for  the  theory 
itself  that  wc  are  indebted  to  the  Austriati  school.  While 
the  conception  is  older,  the  term  itself,  marginal  utility 
{Grenzmitzen) ,  was  first  introduced  by  Wieser  in  his  **  Ur- 
sprung  des  Wertkes,''  1884.  It  is  now  generally  accepted 
by  economic  writers. § 

Although  Jevons  and  the  Austrians  agree  in  considering 
marginal  utility  the  basis  of  value,  we  find  an  important  dif- 
ference in  regard  to  the  fundamental  meaning  of  the  word 
value.  Cairnes  opens  his  political  economy  with  this  state- 
ment: **The  sense  proper  to  value  in  economic  discussion 

♦In  a  treatise  on  Political  Kconomy,  contributed  to  the  "Encyclopedia  Metro- 
politaua,**  p.  12  of  the  second  (cabinet)  edition.  Quoted  by  Jevons  in  the  "The- 
ory of  Political  Economy,'*  p.  53. 

t  Quoted  by  Jevons,  p.  55. 

X  New  Englander,  July,  1881. 

I  See  Marshall's  "  Principles  of  Economics/*  second  edition,  p.  14,  note. 

[5 1 3] 


■V. 


m 


54 


Annai^  of  the;  Amkrican  Acadkmy. 


Wieskr's  Naturai,  Vai,ue. 


55 


may,  I  think,  be  said  to  be  universally  agreed  upon  by  econo- 
mists, and  I  may,  therefore,  at  once  define  it  as  expressing 
the  ratio  in  which  commodities  in  open  market  are  exchanged 
against  each  other."  Jevons  accepted  this  concept,  but  felt 
obliged  to  avoid  the  use  of  the  word  value,  because  he  recog- 
nized that  popular  usage  did  not  agree  with  the  definition  of 
the  economists.  The  Austrians,  on  the  other  hand,  follow 
Menger  in  defining  value  of  goods  as  *  *  the  importance  which 
concrete  goods,  or  quantities  of  goods,  receive  for  us  from  the 
fact  that  we  are  conscious  of  being  dependent  on  our  disposal 
over  them  for  the  satisfaction  of  our  wants."*  The  differ-/ 
ence  must  not  be  overlooked.  On  one  side  value  is  regarded! 
as  a  ratio  between  commodities,  on  the  other  as  importance) 
for  human  well-being.  One  conception  is  objective,  the  other 
subjective.  In  English  theory  value  is  a  relation  between 
commodities,  in  Austrian  theory  it  is  primarily  a  relation  of 
commodities  to  human  wants.  According  to  the  English 
definition  no  commodity  could  rise  in  value  unless  the  other 
commodities  with  which  it  was  compared  fell  to  a  corre- 
sponding extent.  From  the  Austrian  standpoint  a  commod- 
ity may,  through  scarcity  or  increased  need,  increase  in  value 
without  regard  to  other  commodities. 

Although  the  English-speaking  public  has  long  been 
drilled  in  the  ratio  concept  of  value,  there  can  be  no  doubt 
that  common  usage  is  much  more  in  keeping  with  the  Aus- 
trian view.  The  ratio  concept  is  more  simple  from  a  theo- 
retic standpoint,  but  it  may  well  be  hoped  that  the  great 
problems  of  economic  policy  can  be  more  satisfactorily  solved 
when  the  fundamental  concept  of  the  science  becomes  '  *  im- 
portance for  well-being"  instead  of  "a  relation   between 

commodities. ' ' 

But  here  again  we  are  indebted  to  the  Austrian  economists 
for  systematic  and  convincing  exposition  rather  than  for  dis- 
covery. In  spite  of  their  definitions  English  economists 
from  Adam  Smith  down  have  occasionally  spoken  of  the 


pj 


♦  ••  Natural  Value,"  p.  21. 


[514] 


time  and  trouble  required  for  obtaining  anything  as  the 
measure  of  its  value.*  Jevons f  thought  that  value  in  ordi- 
nary parlance  was  identical  with  final  utility,  and  Professor 
Clark  I  not  only  recognized  but  adopted  the  subjective  con- 
cept. It  seems  to  be  largely  through  Austrian  influence, 
however,  that  recent  contributions  to  economic  theory  have 
generally  accepted  the  subjective  concept  as  the  primary 
meaning  of  value  and  used  the  phrase,  **  objective  value,"  (or 
more  exactly  ''objective  exchange  value,")  to  designate  the 
power  of  commodities  to  command  each  other  in  exchange. 

The  Austrians,  as  Menger's  definition  indicates,  consider 
value  as  primarily  an  individual  matter.  The  value  of  a 
dollar  will  vary  from  individual  to  individual,  according  to 
the  amount  and  intensity  of  their  wants,  and  in  inverse  ratio 
to  their  respective  incomes.  As  the  value  of  a  dollar  varies 
among  individuals,  so  will  the  value  of  the  commodities  for 
which  the  dollar  is  exchangeable.  The  rich  man's  trifle  is 
the  poor  man's  fortune.  Even  when  the  subject  of  exchange 
is  taken  up,  the  personal  valuation  is  maintained.  The  ex- 
change value  (^TaiischwertK)  of  a  commodity  is  the  subjec- 
tive importance  of  the  goods  for  which  the  commodity  will 
exchange.  Thus  it  is  only  when  two  men  are  in  the  same 
economic  condition  that  even  the  (subjective)  exchange 
value  of  a  commodity  is  the  same  to  both  of  them. 

Yet  Wieser  §  recognizes  that  "  when  we  speak  generally  of 
the  value  of  goods  we  mean  the  economic  rank  given  them 
by  their  prices,''  and  thus  is  introduced  a  phase  of  value 
which  is  practically  the  same  as  the  '  *  power  in  exchange ' ' 
of  the  English  writers.  This  objective  exchange  value  is 
designated  Verkehrswerth  by  Wieser,  to  distinguish  it  from 
the  subjective  Taiischwerih,  and  the  translator  has  yielded 
somewhat  to  English  usage  in  rendering  the  former  term  by 

♦In  such  expressions  value  denotes  subjective  importance,  though  viewed  from 
the  side  of  cost  instead  of  utility, 
t" Theory  of  Political  Economy,"  pp.  80  and  162, 
X  "Philosophy  of  Wealth,"  V. 
)  "Natural  Value,"  p.  51. 

[515] 


f 


56 


Annai^s  of  the  American  Academy. 


the  phrase  "  exchange  value''  without  qualification.     The 
relationship  between  subjective  value  and  market  price  has 
been  treated  more  fully  by   Bohm-Bawerk,*  but  Wieser's 
brief  statement  gives  the  essential  thought.   Every  one  before 
making  a  purchase  forms  some  mental  estimate  of  the  impor- 
tance of  the  article  to  him,  this  importance  depending  of 
course  upon  his  present  supply  and  need,  in  accordance  with 
the  principle   of  marginal   utility ;    but  before  making  a 
rational  purchase  one  must  also  form  a  mental  estimate  of 
the  value  of  the  dollar  to  him,  lest  in  making  one  purchase 
he  may  spend  money  required  for  other  purchases  of  more 
importance.      In    other   words,   everyone  must  enter  the 
market  with  all  personal  valuations  expressed  in  terms  of 
the  monetary  unit,  however  much  the  value  of  this  unit 
may  vary  between  individuals.     A  stock  of  goods  placed 
upon  the  market  does  not  go  to  the  persons  who  value  them 
most,  but  to  those  whose  subjective  valuations  are  expressed 
in  the  largest  number  of  dollars  and  cents.     The  price  then 
is  not  fixed  by  the  marginal  want  which  the  stock  is  suffi- 
cient to  supply  but  by  the  marginal  money  equivalent  of  these 
subjective  wants.     The  price  does  not  represent  a  definite 
degree  of  want  but  simply  the  amount  of  money  or  other 
commodity  which  the  marginal  buyer  is  willing  to  give. 

Having  once  shown  that  prices  are  developed  from  the 
action  of  personal  valuations  in  the  market,  the  Austrians 
abandon  the  subjective  standpoint  for  the  time  and  like  the 
English  economists  treat  exchange  value  as  a  relation 
between  commodities,  f 

♦  "  Grundzuge  der  Theorie  des  Werthschafllichen  Guterwerths,''  in  Conrad*8 
JahrbxUher^  vol.  xiil,  1886.    Sec  '*  Positive  Theory  of  Capital,"  p.  129. 

t  *'  Subjective  value  represents  a  distinct  feeling ;  that  of  being  dependent  upon 
the  possession  of  a  good  for  the  satisfaction  of  a  want, — a  distinct  degree  of  per- 
gonal interest  in  goods.  Objective  value,  on  the  other  hand,  merely  represents  a 
definite  price  ;  a  definite  amount  of  payment  which  is  expected  or  required  in 
buj'ing  or  selling.  The  former  has  its  measure  in  the  different  gradations  of 
desire,  the  latter  in  the  quantities  of  coin,— in  the  figures  of  the  price."  *'  Natural 
Value,**  p.  51. 

"l^change  value  is  the  capacity  of  a  good  to  obtain  in  exchange  a  quantity  of 
other  goods.  Price  is  that  other  quantity  of  goods"  **  Positive  Theory  of  Cap- 
ital." p.  132. 

[516] 


Usf* 


WiESKR^s  Natural  Value.  57 

This  relapse  from  the  subjective  standpoint,  whether  neces- 
sary or  not,    seems  at  least  unfortunate.      The  Austrians 
have  given  us  the  vision  of  a  theorj^  of  value  resting  upon 
the  substantial  basis  of  importance  to  human  weU-being,  but 
in  the  field  of  exchange  value  where  we  have  the  greatest 
need  for  some  substantial  basis,  we  are  left  with  the  old  idea 
that  value  is  an  expression  of  quantity  of  goods  rather  than 
of  subjective  importance— a  relation  of  goods  to  each  other 
mstead  of  their  relation  to  human  welfare.      Looking   at 
economic  life  from  the  individualistic  standpoint,  they  have 
failed  to  conceive  the  idea  of  social  utility*  as  applicable  to 
our  present  condition  of  inequality  among  individuals.    The 
fact  that  dijffereuces  in  wealth  regularly  cause  goods  to  pass 
by  the  urgent  needs   of  the  poor  in  order  to  satisfy  the 
slightest  wish  of  the  rich  has  seemed  to  the  Austrians  an 
insuperable  barrier   to  the  maintenance  of  the  subjective 
standpoint  in   dealing  with  the   exchange  value   that  now 
governs  industrial  economy. f 

Wieser  avoids  this  difficulty  of  applying  the  principles  of 
subjective  value  to  a  society  where  inequality  of  wealth  pre- 
vails by  imagining  a  communistic  state  where  private  prop- 
erty does  not  exist  and  the  use  of  goods  is  distributed 
according  to  needs.  The  distorting  effect  of  differences  in 
ability  to  pay  is  thus  removed,  as  well  as  the  disturbances 
of ''error,  fraud,  force  and  chance.*' 

The  communistic  society,  like  the  person  in  the  individual 
economy,  is  supposed  to  so  utilize  its  goods  as  to  satisfy  all 
wants  down  to  the  lowest  degree  that  the  total  supply  of  the 
commodity  will  cover.  The  importance  of  a  unit  of  a  com- 
modity, a  bushel  of  wheat  for  example,  may  now  be  accu- 
rately gauged  by  the  marginal  utility  of  the  supply  of  that 
commodity.  In  such  a  state  every  means  for  the  satisfaction 
of  human  want  would  be  valued  according  to  the  degree  of 
want  which  would  be  dependent  for  its  satisfaction  upon  the 

♦  Professor  Clark,  for  example,  looks  upon  value  as  a  social  fact—the  measure 
of  final  utility  to  society.    See  Yale  Revieiv,  Novemt)er,  1892. 
t  **  Natural  Value,"  bk.  ii,  III. 

[517] 


58 


Annai^  of  thk  American  Academy. 


Wieser's  Naturai,  Value. 


59 


particular  article  in  question.     It  would  have  what  Wieser 
calls  its  natural  value. 

This  concept  of  natural  value  is  introduced  toward  the  end 
of  the  second  book  of  Wieser's  work  and  becomes  the  main 
theme  of  the  remaining  books,  which  are  entitled  respect- 
ively: *'  The  Natural  Imputation  of  the  Return  from  Produc- 
tion/*  ''The  Natural  Value  of  Land,  Capital  and  Labor," 
*'The  Natural  Cost  Value  of  Products,'*  and  **  Value  in  the 
Economy  of  the  State."  The  fact  that  the  supposition  of  a 
communistic  state  underlies  the  discussion  must  not  lead  the 
reader  to  think  that  the  work  is  a  treatise  upon  socialism. 
The  object  of  the  work  is  to  elucidate  the  fundamental  prin- 
ciples of  value  and  distribution,  and  to  this  end  the  fiction  of 
an  ideal  communistic  state  serves  two  purposes:  it  eliminates 
many  complications  and  disturbances  which  might  other- 
wise detract  the  student  from  a  clear  insight  into  the  underly- 
ing principles  which  are  the  basis  of  all  value  relations,  and 
it  also  serves  to  give  the  student  a  clearer  idea  of  the  real 
nature  of  the  services  for  which  rent,  interest,  and  extra 
wages  are  paid  through  the  consideration  of  the  question, 
whether  or  not  these  services  would  retain  their  value  in  a 
communistic  state.  The  chief  difference  between  natural 
value  and  exchange  value  has  already  been  indicated:  the 
former  expresses  what  would  be  the  marginal  utility  of  goods- 
if  they  were  distributed  according  to  needs,  the  latter  is  the 
marginal  valuation  when  goods  are  distributed  according  to 
the  amounts  offered  in  exchange  for  them.  The  conceptions 
have  much  in  common  and  Wieser  constantly  indicates  the 
changes  which  must  be  made  in  passing  from  the  realm  of 
natural  value  to  existing  conditions. 

Our  author  next  takes  up  the  subject  of  '*  imputation.*' 
When  several  factors  co-operate  in  the  satisfaction  of  a  single 
want,  how  is  the  economic  importance  of  the  several  factors 
to  be  determined  ?  Upon  what  principle  is  the  value  of  a  | 
service  to  be  imputed,  in  an  economic  sense,  to  the  various 
contributing  elements  ?    It  is  evident  that  the  solution  of  this 

[518] 


problem  involves  an  explanation  of  the  relation  between  value 
and  cost  of  production.  It  is  for  the  extended  treatment  of 
the  costs  of  production  that  Wieser's  work  stands  pre-em- 
inent among  the  Austrian  writings. 

As  is  well  known,  the  prevailing  economic  theory  makes 
cost  of  production  the  determinant  of  the  normal  value  of 
products,  while  the  Austrian  economists  claim  that  the 
amount  of  the  costs  is  really  determined  by  the  value  of  the 
products.  Does  cost  determine  value  or  value  determine 
cost  ?  Stated  in  this  way  the  case  appears  to  be  one  of  direct 
opposition  and  Bohm-Bawerk  says  of  it :  ''  That  is  a  ques- 
tion as  fundamental  for  political  economy  as  the  question 
between  the  Ptolemaic  and  Copernican  systems  was  for  as- 
tronomy.' '  *  Close  study,  however,  will  show  that  the  oppo- 
sition between  the  two  schools  is  by  no  means  direct.  The 
Austrians  do  not  disprove,  nor  even  reject,  the  classical  tenet 
that  the  values  of  goods  regularly  produced  under  free  com- 
petition tend  to  conform  to  their  costs  of  production.  They 
have  simply  taken  one  step  back  of  the  English  point  of 
view  and  there  perceive  that  the  values  of  the  elements 
which  enter  into  and  make  up  the  costs  of  production  are 
themselves  derived  from  the  utility  and  scarcity  of  the  vari- 
ous elements.  If  the  Austrians  would  state  their  case  in  this 
simple  form,  instead  of  declaring  a  revolution,  they  could 
hardly  be  opposed,  f 

It  is  to  be  noted  in  passing  that  the  Austrian  idea  of  cost; 
is  entirely  independent  of  the  painfulness  of  labor  which 
English  economists  have  sometimes  vaguely  imagined  to 
be  the  basis  of  their  theory  that  cost  determines  value.  No 
one  who  studies  modern  social  conditions  can  claim  that 
labor  is  paid  or  even  tends  to  be  paid  in  proportion  to  its 
painfulness,   and  furthermore,  many  items  of  cost,  such  as 

^>  ♦"The  Austrian  Economists,'*  Annals,  vol.  i,  p.  37ijanuary,  1891. 

t  Since  this  paper  was  written  the  relationship  between  cost  and  value  and  the 

real  nature  of  the  cost  which  regulates  value  have  been  treated  by  Bohm-Bawerk : 

y'*J)tr  LttzU  Masstabdes  Guterwertes,''  Zeitschrifl  fur  Volkswirtschaft,  SocialpoHtik 

^nnd  Verwaltung.     Dritter  Band,  II.  Heft.    *'  The  Ultimate  Standard  of  Value.'* 

Annals,  vol.  v,  p.  149,  September,  1894. 

[519] 


^  Annals  of  thk  American  Academy. 

minerals  and  the  use  of  land,  are  not  produced  by  labor  at 
all.  Cost  from  the  Austrian  standpoint  is  the  sacrifice  of  a 
utility  and  unless  an  equal  or  greater  utility  results  from! 
any  outlay  in  question,  the  outlay  is  not  economic  This' 
may  not  be  the  idea  of  cost  which  best  expresses  human 
progress  and  welfare,  but  it  may  well  be  conceded  that  it  is 
this  form  of  cost  which  determines  exchange  values  * 

Instead  of  treating  the  value  of  an  element  of  production 
tis  a  simple  case  of  value  determined  by  the  marginal  utility 
of  the  element  in  question,  both  Wieser  and  Bohm-Bawerk 
have  chosen  to  explain  cost  values  as  a  manifestation  of  the 
principle  of  complementary  goods.    Menger  had  proposed  to 
ascertam  the  value  of  any  good  by  considering  the  amount 
of  loss  that  would  result  from  its  annihilation.     Upon  this 
pnnciple  a  single  glove  carries  with  it  the  value  of  the  pair 
and  each  horse  of  a  perfectly  matched  span  is  valued  at  more 
than  half  the  value  of  the  span,  for  if  either  horse  should  die 
more  than  half  the  value  would  be  lost.     In  like  manner,  if 
a  half  dozen  elements  co-operate  in   forming  a   desirable 
product— say  a  loaf  of  bread— the  lack  of  any  one  ingredient 
might  seriously  impair  the  usefulness  of  the  others.     So 
Wieser  criticises  thepositionof  his  predecessor  on  the  ground 
that  were  the  elements  of  production  valued  in  this  way  the 
sum  of  their  values  would  exceed  the  value  of  the  product 
which  is  made  from  them,  and  the  manifest  absurdity  would 
be  reached  that  all  production  is  carried  on  at  a  loss.    Wieser 
thereupon  brings  forward  his  concept  of  the  '*  productive 
contribution-  {Bettrag).     -The  deciding  element  is  not 
that  portion  of  the  return  which  is  lost  through  the  loss  of 
the  good,  but  that  which  is  secured  by  its  possession.**! 

In  order  to  arrive  at  the  amount  which  each  element  con- 
tributes to  the  value  of  the  product  the  algebraic  method  of 
solution  by  equations  is  proposed.     Let  x,  y,  z,  etc.,  stand 

♦  For  a  fuller  development  of  this  line  of  thought,  the  reader  is  referred  to  an 
article  by  the  present  writer  entitled  "  Pain-cost  and  Opportunity<ost,"  in  the 
Qnarterly  Journal  of  Economics,  January,  1894. 

t  "  Natural  Value/'  p.  85. 

[520] 


WiKSER^s  Naturai.  Vai,ue. 


6r 


W 


for  units  of  the  productive  elements,  such  as  materials,  labor 
of  dijQFerent  grades,  and  the  use  of  capital.  The  same  pro- 
ductive elements  enter  into  various  products  in  various  pro- 
portions. By  observing  the  values  and  composition  of  the 
products  (these  values  being  fixed  by  the  marginal  utility  of 
the  products) ,  we  would  discover  equations  after  the  manner 

of  the  following : 

X  -\-  y^=^  100 

2  X  -\-2,  ^  =  290 
4^^  + 5 '2' =  590 

from  which  the  unknown  values  may  be  determined.  Of 
course,  in  actual  economic  life  the  number  of  productive 
elements  is  almost  unlimited,  but  the  number  of  combina- 
tions which  would  give  independent  equations  is  fully  as 
large.  Solved  in  this  way,  the  sum  of  the  productive  con- 
tributions of  the  elements  is  bound  to  equal  the  value  of  the 
product.  The  productive  contribution  which  is  everywhere 
assignable  to  a  given  element  of  production  is  the  cause  and 
measure  of  its  value.  An  increase  in  the  supply  of  an 
element  would  extend  it  to  uses  of  less  importance  and  so 
reduce  the  productive  contribution  that  could  be  imputed  to 
it.  The  productive  contribution  of  a  given  clement  must  be 
uniform  in  its  different  uses  for  othen\'ise  the  element  would 
be  transferred  from  one  use  to  the  other. 

Wieser's  method  of  solving  the  problem  of  the  imputation 
of  value  to  cost  goods  is  stated  here  somewhat  fully  be- 
cause he  seems  to  regard  it  as  an  important  contribution  to 
economic  theory,  and  constantly  refers  to  it  as  the  basis  of 
his  subsequent  arguments.  This  method  of  solution  is,  I 
believe,  peculiar  to  Wieser  among  the  Austrian  writers,  and 
I  venture  to  call  it  the  weakest  point  in  his  theory  of  value. 
Several  points  of  criticism  will  be  briefly  stated: 

(i)  The  problem  of  imputation  is  to  ascertain,  not  what 
are  the  values  of  the  elements  of  production,  but  what  forces 
make  those  values  what  they  are.  Wieser's  equations  might 
give  us  the  values,  but  they  could  never  explain  the  values^ 

[521] 


^2 


Annai<s  of  thk  American  Academy. 


(2)  Weiser's  method  can  give  us  no  rules  for  the  appor- 
tionment of  an  element  to  its  different  uses,  for  unless  the 
apportionment  is  already  perfect  an  element  will  be  given  a 
greater  value  in  one  use  than  in  another,  the  different  equa- 
tions will  not  be  simultaneous,  and  the  solution  will  be  im- 
possible. 

(3)  The  criticism  of  Menger  is  not  well  founded.  Wieser, 
in  common  with  other  writers,  has  failed  to  distinguish 
between  special  and  general  values.  General  values  are 
those  which  prevail  in  the  market  where  all  goods  that  are 
precisely  alike  have  the  same  value.  Here  the  action  of  the 
marginal  law  is  apparent.  Special  values  attach  to  individ- 
ual articles  under  special  circumstances.  The  value  of  a 
loaded  revolver  to  the  waylaid  traveler,  the  value  of  a  mastiff 
to  its  fond  master  and  the  value  of  a  lost  glove  when  its  mate 
is  in  possession,  are  examples  of  special  values.  In  fact 
almost  every  article,  when  in  actual  use  has  in  addition  to 
the  general  (market)  value  some  special  value  on  account 
of  its  special  adaptation  or  on  account  of  the  delays  and  in- 
conveniences which  are  in  the  way  of  replacement.  Goods 
ordinarily  sell  at  their  general  values,  a  dealer  can  secure 
special  values  only  through  extortion.  General  values 
usually  correspond  with  costs  of  production,  but  special  cir- 
cumstances may  give  a  five  cent  iron  bolt  the  value  of  thou- 
sands of  dollars. 

Now  it  will  be  noticed  that  in  criticising  Menger' s  method 
of  estimating  values  through  loss,  Wieser  always  bases  his 
objections  upon  special  values,  and  does  not  notice  that  his 
own  method  of  solving  through  equations  would  fail  com- 
pletely in  the  same  cases.  Add  together  the  special  values 
which  attach  to  every  piece  of  metal  in  an  engine  in  service 
and  the  sum  would  far  exceed  the  value  of  the  engine.  It 
does  not  matter.  The  parts  are  not  bought  and  sold  at  their 
special  values.  Again  let  us  suppose  that  bread  made  with- 
out salt  would  be  worthless.  Would  Menger' s  formula  then 
assign  to  the  salt  a  value  equal  to  that  of  the  bread  ?    Only 

C522] 


Wieser's  Natural  Value. 


63 


in' 


tmder  the  strict  condition  that  no  more  salt  could  be  obtained. 
Complementary  goods  are  especially  subject  to  an  extra 
special  valuation,  but  they  do  not  attain  this  extra  valuation 
in  a  general  market.  The  fact  that  salt  is  an  indispensable 
ingredient  of  many  valuable  foods  has  no  effect  upon  its 
value  so  long  as  the  supply  is  sufficient  to  satisfy  also  its  less 
important  uses.  Menger's  principle,  when  rightly  used,  is 
quite  correct.  The  value  of  anything  may  be  estimated 
through  the  loss  that  would  result  from  its  annihilation. 
But  a  serious  error  would  be  involved  should  w^e  undertake 
to  derive  the  general  value  of  a  commodity  from  the  loss 
that  might  occur  under  special  circumstances. 

(4)  In  maintaining  the  importance  of  the  principle  of  com- 
plementary goods,  Wieser  seems  to  overlook  the  distinction, 
which  he  elsewhere  well  observes,  between  the  value  of  a 
commodity  taken  as  a  whole  and  the  value  of  some  small 
quantity  of  the  commodity.  General  values  have  to  do  with 
the  small  portions  that  are  bought  and  sold  at  a  time.  The 
value  of  salt,  taken  as  a  whole,  is  indefinitely  great,  for  we 
•could  hardly  live  without  it,  but  the  small  quantities  that 
are  bought  and  sold  at  a  time  have  no  such  importance.  It 
is  customary  to  estimate  the  value  of  the  world's  supply  of  a 
<X)mmodity  as  the  product  of  the  quantity  and  marginal 
value,  but  if  an  inhabitant  of  a  neighboring  planet  should  / 
offer  to  buy  the  whole  supply  at  the  marginal  rate  we  could 
hy  no  means  afford  to  accept  the  offer.*  There  is  seldom 
any  cause,  however,  for  estimating  the  value  of  a  total  sup- 
ply. General  values  have  to  do  with  the  small  portions  that 
are  bought  and  sold  in  single  transactions.  These  portions 
of  a  commodity  have  comparatively  small  value  because,  if  a 
portion  were  lost,  it  could  be  replaced  by  simply  withhold- 
ing some  of  the  commodity  from  its  marginal  uses.  Wieser 
refers  the  values  of  capital  and  labor  to  the  principle  of  com- 
|plementary  goods,  on  the  ground  that  each  is  indispensable 

•  Professor  Ross  has  brought  out  this  limitation  to  marginal  utility  value  in  **  The 
"Total  Utility  Standard  of  Deferred  Payments,''  Annals  vol.  iv,  p.  425,  Nov.,  1893. 

[523] 


64 


Annals  op  the  Amkrican  Academy. 


for  the  frititfiilness  of  the  other.  It  is  trite  that  capital  and 
labor  as  a  whole  arc  thus  nmlually  dcpctulciil,  but  labor  and 
capital  do  not  bargain  with  each  other  as  a  whole.  The  use 
of  either  capital  or  labor  is  valued  in  the  open  market  accord- 
ing to  its  marginal  uses,  no  less  truly  than  it  would  be  if 
their  activities  were  quite  independent  of  each  other. 

(5)  Menger's  division  of  economic  goods  into  ranks  is  an 
impediment  rather  than  a  help  to  a  clear  understanding  of 
the  process  of  value   formation.      Menger's   conception  is 
adopted  by  the  other  Austrians  and  Is  well  known.     Goods 
of  the  first  rank  are  those  ready  for  consumption,  such  as 
bread  and  clothing.     Their  utility  is  the  source  of  all  value 
and  is  reflected  back  to  goods  of  the  second  rank,  such  as 
flour  and  cloth,  and  so  on  to  goods  of  more  remote  ranks  as 
wheat,  laud,  plows,  iron.     It  is  evident  that  the  series  colild 
be  extended  back  quite  indefinitely.    This  division  into  ranks 
would  doubtless  be  a  very  important  matter  if  it  were  only 
true  that  each  commodity  belonged  to  some  particular  rank 
but  as  a  matter  of  fact  there  is  hardly  a  conmiodity  in  gen- 
eral trade  but  what  has  difierent  uses  which  would  make  it 
belong  at  the  same  time  to  an  indefinite  number  of  ranks 
The  effect  upon  the  price  of  salt  is  exactly  the  saine  whether 
a  given  demand  is  for  direct  consumption,  for  use  in  cook- 
ing, or  for  use  in  some  remote  manufacturing  process      In 
every  case,  so  far  as  economic  life  is  well  organized,  the  use 
of  a  commodity  is  extended  in  all  ranks  till  the  common 
marginal  utility  is  reached.* 

To  sum  up  the  criticism  of  Wieser's  theory  of  imputation 
I  should  say  that  he  has  introduced  many  perplexing  and 
useless  complications  in  an  attempt  to  explain  a  process  which 
m  Its  outlme  is  simple  and  easily  understood.  The  essential 
fact  that  lies  at  the  bottom  of  Wieser's  arguments  has  already 

•I  would  not  underestimate  the  importance  of  Menger's  observation  that  all 

.■lo^u^S  wh'^^^'arrr  *T;  7""^  '""^  '-^  ™"-'"P"°"  ^oods  ^7  «.e"co!'su„i 
tion  uses  which  are  expected  from  them.  •  That  observation  is  essential  to  an  un^ 
derstanding  of  economic  life,  but  the  supposed  arrangement  of  good,  TnZnL 
only  makes  .t  more  difficult  to  apply  the  theory  of  valuf  to  actual  co^itions 

[524] 


Wieser's  Natural  Value.  g. 

been  given.  The  general  values  of  the  elements  of  produc- 
tion are  derived  from  the  utility  of  the  elements  amU  ^  to 
equal  their  respective  marginal  utilities.  It  natur^Hy  fo  lows 
under  a  system  of  private  property  and  free  competitLn  th^ 

supply  many  services  or  services  which  have  a  high  marginal 

In  applynig  his  theory  of  imputation  to  the  leading  factors 
of  production-land,  labor  and  capital-Wieser  brfngs  ouj 
mny  interestnig  distinctions  and  offers  some  valuablfcriti 
cisms.     His  treatment  of  capital  demands  attention  on  ac 
count  of  Its  relation  to  Bohm-Bawerk's  more  extended  work 
D  scarding  the  idea  that  the  average  man  desires  to  priv S; 

find  tLT"   1  ""  ''^P""^  ''  «^^  ^"*"--  Wieser  seems  to 
find  the  cause  of  mterest  in  the  productivity  of  capital     Bv 

^aginmg  a  number  of  cases  of  the  use  of  capital  in  vTrying 
i  Z^JH  -loosing  the  contribution  duel>  capital  to  2 
K  ascertained  by  solving  the  equations  which  the  different  cases 

furnished,  our  author  concludes  that  when  the  co-operatfou 

ttt  «  "  '"  \'  ^"P"^^^  *°  «-  "-  of  the  capital   and 

that  the  amount  to  be  so  imputed  will  vaiy  directly  with  the 

I  ainount  of  capital  involved  and  the  perioLf  time^  llj^^ 
t  L  ''.'"',^''^^;^  ^'■^"^  other  uses.  That  the  use  of  capital 
pdo^  yield  such  a  surplus  value  no  one  can  doubt.  It"^^ 
,  ody  be  regretted  that  Wieser  has  not  done  more  to  show  u^ 

IwhLl  ''  '*'■  ^°''  "°*  '"^^^"^^^  *h^  «'"^Pl«  feet  that 

|6tmence  frdm  present  consumption  is  limited  by  the  preiure 
l^t  wa^  so  that  the  mai^inal  utility^f  .^^^ 

W^'  Tt.^  ^^^'"-B^^'^'-k  differ  in  their  methods  of  ap- 

Cf     T?-.        '"*''■''!  P'"^^'"^  '''^''  than  in  the  solution 
Cl,  fw""  Woaches  the  problem  through  the  observa- 

C  r  f  f  '"'P''^'  ^  ^^^^"^"^^  ">  ^^I"«  between  present 

[and  futm-e  goods.     He  seems  to  think  that,  as  a  rule,  future 

^  [525] 


66 


Annai^  of  th«  American  Academy. 


wants  also  are  discounted  in  the  present.     The  former  prop- 
osition  cannot  be  doubted,  but  the  latter  is  denied  by  Wieser 
and  is  certainly  open  to  question;  furthermore,  it  is  by  no 
means  essential  to  Bohm's  theory.     While  holding  present 
and  future  wants  in  equal  estimation  one  may  assign  a  higher 
value  to  present  goods  *  on  account  of  the  increase  which 
could  be  obtained  from  them,  or  as  Bohm  would  say,  on 
account  of  the  technical  superiority  of  present  goods.  Though 
a  hundred  dollars'  worth  of  enjoyment  next  year  or  this  year 
were  equally  desired,  one  would  undoubtedly  prefer  to  have 
the  hundred  dollars  at  once,  because  as  a  matter  of  fact  we 
know  that  the  hundred  dollars  could  be  so  invested  as  to 
yield  an  extra  five  dollars  by  next  year.     The  difference  in 
value  between  present  and  future  goods  is  a  necessary  feature 
but  not  an  explanation  of  interest  payments.     Both  Bohm 
and  Wieser  depend  for  their  solutions  of  the  interest  problem 
upon  the  service  of  capital  in  industry.      Bohm  thus  ao 
counts  for  the  higher  value  of  present  goods,  w^hile  Wieser 
considers  the  productive  contribution  imputable  to  capital  as 
the  direct  cause  of  interest. 

Having  expounded  his  method  of  imputing  the  return 
from  production  to  the  different  contributing  services,  Wieser 
next  takes  up  the  relation  between  the  value  of  the  services 
of  permanent  goods,  such  as  land  and  fixed  capital,  and  the 
value  of  the  goods  themselves.  The  ordinary  principle  of 
capitalization  is  found  to  be  correct. 

The  book  entitled  ''The  Natural  Cost  Value  of  Products," 
is  especially  strong  and  acquits  the  Austrians  of  the  frequent 
charge  that  they  do  not  recognize  the  influence  of  cost  upon 
the  value  of  products.  Unlike  the  classical  economists,  how- 
ever, Wieser  takes  the  ground  that  when  all  the  costs  are^ 
reckoned  they  equal,  under  natural  conditions,  the  value  of 
the  product.     The  difference  between  the  two  views  is  a' 

♦  By  present  goods  I  mean  goods  at  hand  as  contrasted  with  goods  to  be  had  In 
the  future.  The  use  of  the  term  present  goods  to  denote  goods  ready  for  con- 
Jiumption  in  contrast  with  production  goods  is  confusing. 

[526] 


WiESER's  Natural  Value.  67 

matter  of  terminology.      There   is  no  agrceincJit  between 
economists  or  business  men  as  to  where  the  line  shall  be 
drawn  between  costs  and  profits.      Hired  labor  is  perhaps 
always  included  in  cost,  but  the  entrepreneur's  services,  the 
use  of  capital  and  the  use  of  valuable  land  and  other  natural 
resources  are,  as  a  rule,  altogether  or  in  part  omitted.    Wieser 
includes  all  such  services  under  costs  and  thus  leaves  for 
profits  only  the  fortuitous  and  temporary  gains  that  arise  from 
economic  changes.     He  recognizes  that  the  available  supply 
of  capital,  of  exceptional  talent,  of  rich  mines,  or  of  favor- 
ably located  land  is  limited;  and  if  the  best  results  are  to  be 
obtained  from  our  productive  forces,  whether  we  take  the 
social  or  the  individual  standpoint,  the  use  of  these  produc- 
tive powers  must  not  be  wasted.    They  must  not  be  assigned 
to  a  given  line  of  action  without  counting  the  cost.     The 
whole  discussion  is  replete  with  valuable  suggestions. 

One  other  point  is  made  so  prominent  that  it  ought  not  to 
be  overlooked  here;  namely,  that  while  the  recognition  of  the 
services  of  land  and  capital  as  a  part  of  the  cost  of  produc- 
tion, refutes  the  socialist's  claim  that  value  is  due  to  labor 
alone,  and  accounts  for  rent  and  interest,  it  does  not  prove  any- 
thing cither  for  or  against  the  j uslice  or  expediency  of  allow- 
ing these  sources  of  value  to  become  sources  of  private  income. 
The  last  few  pages  of  Wieser's  book  contain  a  very  brief 
application  of  the  theory  of  subjective  value  to  the  economy 
of  the  State.     Taxation  in  proportion  to  wealth  condition  is 
justified  on  the  ground  that  every  one  thus  would  contribute 
an  equal  amount  of  subjective  value.    Yet  Wieser  maintains. 
■  In  opposition  to  Sax,  that  a  more  strictly  economic  distribution 
of  the  burdens  of  taxation  would  place  them  all  upon  the  rich, 
for  thus  the  total  sacrifice  would  be  reduced  to  a  minimum.'  ' 

In  respect  to  amount  of  taxation  or  of  expenditure  through 
the  State,  the  principle  is  taken  from  Sax  that  the  line 
should  be  drawn  at  the  point  of  greatest  return.  "  If  the 
State  should  claim  too  much,  it  diminishes  value  by  ex- 
pending  goods  for  purposes  of  State  economy  which  would 

[527] 


Kvvr 


"^— ^•\ 


68 


Annals  of  the  American  Academy. 


WiESER's  Natural  Value. 


69 


have  a  higher  vakie  if  employed  in  private  economy.  If  it 
claims  too  lillle,  value  is  again  diminished — as  in  tliis  case 
also  the  entire  importance  of  the  goods  is  not  realized/** 
The  special  field  for  State  activity,  however,  is  found  along 
three  lines:  (i)  when  only  collective  action  would  guarantee 
sufficient  power;  (2)  when  the  benefits  of  an  enterprise 
would  be  so  diffused  that  it  would  prove  unprofitable  in 
private  hands;  and  (3)  in  enterprises  which  are  natural 
monopolies  carrying  with  them  powers  that  would  not  be 
safely  vested  in  private  hands. 

On  closing  Wieser*^  book  which  has  "attempted  to  ex- 
haust the  entire  sphere  of  the  phenomena  of  value, ' '  one 
naturally  pauses  to  consider  whether  any  important  phase 
of  the  subject  has  been  passed  without  notice.  There  is  little 
difficulty  in  finding  such  omissions. 

The  treatment  of  value  as  a  development  from  utility 
naturally  throws  emphasis  upon  demand,  and  thus  contrasts 
with  the  cost  theory,  which  finds  the  decisive  element  in 
value  formation  upon  the  side  of  supply.  Wieser's  extended 
treatment  of  the  efiect  of  cost  of  production  upon  the  supply 
and  through  supply  upon  the  value  of  products  frees  the 
Austrians  from  the  charge  of  having  neglected  the  considera- 
tion of  supply.  Yet  it  will  be  noticed  that  Wieser  only 
attempts  to  account  for  the  supply  of  products.  The  impor- 
tant question  that  the  Austrians  have  neglected  is, — What  are 
the  forces  which  fix  the  supply  of  the  elements  of  production  ? 
Granting  that  we  have  a  definite  supply  of  the  elements  of 
production,  the  Austrian  theory  gives  us  the  best  method  of 
accounting  for  the  value  of  goods,  but  it  will  not  do  to  take 
this  supply  for  granted.  The  supply  of  none  of  these  ele- 
ments is  fixed  independently  of  man*s  volition.  The  amount 
of  available  land  might  be  increased  by  migration  or  by 
transportation  facilities.  The  supply  of  labor  of  all  grades 
could  be  increased,  for  the  time  at  least,  by  working  harder, 
and  labor  could  be  transferred  from  one  grade  to  another  by 


ft 


•  "  Natural  Value,"  p.  235. 


[528] 


education.  Capital  could  be  increased  by  saving  more.  The 
principles  which  determine  the  supply  of  these  elements  of 
production  must  form  a  part  of  any  complete  theory  of  value. 
A  second  field  of  inquiry,  important  to  the  theory  of  value 
but  neglected  by  our  author,  is  that  which  embraces  the  pro- 
ducts and  services  of  monopolies.  In  drawing  a  contrast 
between  monopoly  goods  and  cost  goods  Wieser  thus  de- 
scribes the  former  class:  * 

Characteristic  of  this  group  is  the  comparative  rarity  of  such  goods 
«  compared  with  the  demand  for  them,  or,  it  may  be,  the  compara- 
tively small  quantity  that  can  be  produced.  As  examples  of  goods 
■which  have  pronouncedly  the  character  o'f  monopoly  may  be  men- 
tioned the  following:  Scarce  raw  materials,  land  exceptionally  situated 
the  work  of  one  peculiariy  gifted-particularly  an  artist  or  scientific 
worker  of  the  highest  rank,— a  secret  and  at  the  same  time  successful 
process  (or,  more  exactly,  the  exclusive  knowledge  of  such  a  process, 
whereby  the  persons  who  have  it  obtain  a  preference  over  others),  andl 
finally,  works  of  human  hands,  which,  on  account  of  their  size,  or  on 
account  of  technical  difficulties,  cannot  be  repeated. 

We  can  hardly  say  that  Wieser  is  wrong  in  the  definition 
of  monopoly  which  this  passage  gives,  for  there  is  no  agree- 
ment among  economic  writers  in  the  use  of  the  term,  but  it 
seems  at  least  more  appropriate  to  use  the  word  monopoly  to 
designate  an  iiKluslry  or  the  condition  of  an  industry  which 
is  under  a  single  management  to  such,  an  extent  that  the 
amount  of  the  output  or  the  price  of  the  product  or  service 
is  not  subject  to  the  forces  of  competition.  Under  free  com- 
petition  the  amount  and  the  price  of  the  product  is  closely 

•limited  by  the  competitive  forces,  but  under  monopoly  the 

^output  and  the  price  are,  within  comparatively  wide  limits, 

Sunder  the  dictation  of  the  management,  f 

In  this  sense  there  is  no  general  monopoly  of  land  or  of 

skill,  for  land-owners  compete  with  each  other,  and  so  do 

•"Natural  Value,"  p.  to8. 

F^  *.i"  r*/  ^°^'''-^^^  that  monopoly  is  >  matter  of  degrees.  No  enterprise  U 
f.  «ntirely  free  from  the  limitations  of  competition,  and  every  form  of  private  prop- 
f  erty  has  an  element  of  monopoly.  As  with  all  natnral  groups  the  lines  of  division 
cinnot  be  definitely  drawn  between  monopolies  and  competitive  Industries,  yet 
,  we  general  characteristics  of  the  two  groups  are  evident. 

[529] 


\ 


-■ft 


■««! 


70 


Annals  of  thk  American  Academy. 


skilled  laborers.  Rents  and  wages  are  fixed  for  the  most 
part  by  competitive  forces,  while  the  prices  of  such  common 
and  cheap  products  as  sugar  and  petroleum  seem  to  be  largely 
under  the  dictation  of  monopolies.  Wieser's  treatment  of 
monopoly  goods  corresponds  with  his  definition.  He  accounts 
for  the  high  value  of  goods  that  are  useful  and  scarce  through 
the  principle  of  marginal  utility,  but  he  fails  to  consider  the 
real  monopolies.  It  is  not  the  marginal  utility  of  car  rides 
that  fixes  the  fare  at  five  cents,  nor  is  it  the  marginal  utility 
of  a  patented  invention  that  determines  its  selling  price. 
Where  a  product  or  a  service  is  controlled  by  a  strict  mo- 
nopoly either  the  supply  is  limited  arbitrarily  or  the  price  is 
established  first  and  then  the  use  of  the  article  is  extended  till 
the  marginal  utility  reaches  the  arbitrary  price.  In  such 
cases  the  price  determines  the  margin  of  use  instead  of  the 
marginal  utility  determining  the  price.  The  Austrian  for- 
mula  certainly  does  not  apply  here,  but  the  action  of  monop- 
olies is  not  without  system  and  the  rules  which  prevail  in 
the  establishment  of  monopoly  prices  are  of  increasing  im- 
portance to  the  theory  of  value. 

A  third  shortcoming  in  the  work  of  the  Austrian  econo- 
mists lies  in  the  fact  that  economic  theory  is  not  to  be  con- 
fined to  an  explanation  of  values.  Professor  Macvane* 
justly  complains  that  they  seem  to  have  no  idea  of  subjec- 
tive cost.  A  clear  and  correct  theory  of  value  is  a  matter  of 
immense  practical  importance,  but  after  all  the  end  of  econ- 
omic action  is  utility  rather  than  value,  and  the  success  of  a 
nation's  economy  is  to  be  found,  not  in  the  value  of  its  pos- 
sessions, but  in  their  utility,  in  the  privileges  for  enjoyment 
and  development  compared  with  the  discomforts  required  for 
securing  these  privileges.  Pain-cost  must  be  compared  with 
total  utility,  rules  must  be  formed  for  increasing  the  surplus 
of  utility,  and  the  forces  which  determine  the  distribution  of 
this  surplus  must  be  made  clear  to  the  end  that  the  progress 
of  the  race  may  be  promoted. 

Hartford  School  of  Sociology. 

I 

•  Quar terly Journal  of  Economics t  April,  1893;  and  Annals,  vol.  iv,  p.  348,  Nov.  iSqj^ 


David  I.  Green. 


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